Does Income Inequality Contribute to Credit Cycles?

Malinen, Tuomas

doi:10.2139/ssrn.2358414

Cited by 9 publications

(12 citation statements)

References 24 publications

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“…In contrast we fail to find evidence for a positive link between an increasingly polarized distribution of income and household indebtedness as reported by several authors (Behringer & Treeck 2013;Gu & Huang 2014;Kumhof et al 2012;Klein 2015;Malinen 2014;Perugini et al 2016). We think our paper is different in three key aspects which explain the differences in the results.…”

Section: Resultscontrasting

confidence: 87%

“…The Financial Crisis triggered by the collapse of the US mortgage market has motivated a wave of empirical studies which look at the relationship between the trend of rising income inequality and household indebtedness (Klein 2015;Perugini et al 2016;Gu & Huang 2014;Malinen 2014;Behringer & Treeck 2013;Bordo & Meissner 2012;Kumhof et al 2012). Most of these studies are motivated by the theoretical work of Rajan (2010) and Kumhof and Rancière (2010) and do not estimate theory-derived structural models but rely on ad hoc specifications instead.…”

Section: The Empirical Literaturementioning

confidence: 99%

“…Perugini et al (2016) find no statistically significant effect, Bordo and Meissner (2012) find a statistically significant negative effect and Gu and Huang (2014) report a statistically significant positive effect. Klein (2015) and Malinen (2014) are motivated by previous empirical studies and the lack of cointegration tests therein. Both investigate bivariate cointegration relationships between household debt (Klein 2015) or bank credit to the private sector (Malinen 2014) and top income shares.…”

Section: The Empirical Literaturementioning

confidence: 99%

“…Klein (2015) and Malinen (2014) are motivated by previous empirical studies and the lack of cointegration tests therein. Both investigate bivariate cointegration relationships between household debt (Klein 2015) or bank credit to the private sector (Malinen 2014) and top income shares. They find that debt and income inequality are cointegrated.…”

Section: The Empirical Literaturementioning

confidence: 99%

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Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries

Stockhammer¹,

Wildauer

2018

RBE

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The past decades have witnessed a strong increase in household debt and high growth of private consumption expenditures in many countries. This paper empirically investigates four explanations: First, the expenditure cascades hypothesis argues that an increase in inequality induced lower income groups to copy the spending behaviour of richer peer groups and thereby drove them into debt ('keeping up with the Joneses'). Second, the housing boom hypothesis argues that increasing property prices encourage household spending and household borrowing due to wealth effects, eased credit constraints and the prospect of future capital gains. Third, the low interest hypothesis argues that low interest rates encouraged households to take on more debt. Fourth, the financial deregulation hypothesis argues that deregulation of the financial sector boosted credit supply. The paper tests these hypotheses by estimating the determinants of household borrowing using a panel of 11 OECD countries (198011 OECD countries ( -2011. Results indicate that real estate prices and low interest rates were the most important drivers of household debt. In contrast the data does not support the expenditure cascades hypothesis as a general explanation of debt accumulation across OECD countries. Our results are consistent with the financial deregulation hypothesis, but its explanatory power for the 1995-2007 period is low.

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Section: Resultscontrasting

confidence: 87%

Section: The Empirical Literaturementioning

confidence: 99%

Section: The Empirical Literaturementioning

confidence: 99%

Section: The Empirical Literaturementioning

confidence: 99%

See 2 more Smart Citations

Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries

Stockhammer¹,

Wildauer

2018

RBE

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“…Also, the impact of the response received by credit bank due to the shock of income inequality is positive, this refers that income inequality has a positive impact on savings and credit in the short term, and rising in income inequality has contributed to an increased credit by wealthier households as in accordance with Stockhammer (2015) who claims the income inequality leads to speculation in credit and to increase leverage among wealthier households because inequality exhausts their consumption opportunities. These results in contrast to Malinen (2016) which claim that in the short-run income inequality may not affect the bank credit because in the short-run borrowing matches the decreasing real income of workers as they do not increase their consumption, but just try to maintain their original level of consumption.…”

Section: Resultscontrasting

confidence: 81%

Analysis of The Relationship among Macroeconomics, Monetary and Income Inequality

Taresh

Sari

Purwono

2020

EDAJ

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Income inequality in Indonesia remains a controversial issue in the context of Indonesian macroeconomic condition that is evolving in output and government spending, and its increase in consumption accompanied by inflation and slowing of bank credit. The purpose of this study is to investigate the relationship among macroeconomics, monetary and income inequality through a broad theoretical model by adopting a panel Structural Vector Auto-regression (SVAR) model to get more sample size during the period 2005-2018 at 33 provinces in Indonesia. The main results indicate that the variables of output and inflation have positive relationships. The relationship between output and income inequality is also significantly correlated, and those results supported by Kuznets's theory reveal that the relationship between economic growth and income inequality is positive in the short term. The relationship between inflation and income inequality is positive as well in Indonesia. This result is by the fact that low-income families are considered more vulnerable to inflation. The impact of non-food consumption shocks increases income inequality, while Indonesian government spending and bank credit shocks reduce income inequality. Then the response of savings and bank credit to the shock of income inequality is positive.

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Macroeconomic determinants of households' indebtedness in Portugal: What really matters in the era of financialisation?

Romão

Barradas

2022

Int. J Fin Econ

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The objective of this paper is to perform a time series econometric analysis in order to empirically assess the macroeconomic determinants and the corresponding drivers of the Portuguese households' indebtedness in the period 1988 to 2016. During that period, the Portuguese economy experienced a process of financialisation that contributed to an increase in Portuguese households' indebtedness to unprecedented levels. The Portuguese households' indebtedness played a crucial role in the recent sovereign debt crisis. Based on the existing literature, we hypothesize that Portuguese households' indebtedness was due to seven macroeconomic determinants, notably housing prices, financial asset prices, the degree of personal income inequality, households' labour income, the importance of welfare state expenditures, the fraction of the working-age population and the level of interest rates. Our findings reveal that financial asset prices, the degree of personal income inequality, households' labour income and the fraction of the working-age population positively impact Portuguese households' indebtedness, whereas the housing prices negatively impact Portuguese households' indebtedness. Our findings also show that the increase in financial asset prices and the decline in housing prices were the main drivers of Portuguese households' indebtedness in the last few decades.

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Does Income Inequality Contribute to Credit Cycles?

Cited by 9 publications

References 24 publications

Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries

Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries

Analysis of The Relationship among Macroeconomics, Monetary and Income Inequality

Macroeconomic determinants of households' indebtedness in Portugal: What really matters in the era of financialisation?

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